Workers who come up short in terms of their retirement planning are often told to “just keep working.” After all, a few additional years of employment can translate to more savings, fewer years of withdrawals and a bigger Social Security benefit.
The problem is that many workers don’t get to decide when they stop working. The Employee Benefit Research Institute reports that nearly half of retirees left the workforce earlier than planned. Health problems, layoffs and caregiving obligations are just a few of the circumstances that can derail retirement plans.
Job loss can be particularly devastating for someone in their early 60s with limited savings. Data from the Bureau of Labor Statistics shows that as of January, 57.3 percent of long-tenured displaced workers ages 55 to 64 had found new employment. The figure dropped to 38.6 percent for workers 65 and older.
And unlike someone with a million-dollar portfolio, a worker with modest savings may have few attractive options.
When the numbers don’t work
“Working longer is a hope, not a funding strategy,” said David Kassir, CEO and fiduciary wealth adviser at Manna Wealth Management.
The best strategy for workers at any income level, according to Kassir, is to plan ahead as long as possible, before their options narrow. Beyond losing income, for example, Kassir said workers may face additional retirement withdrawals and expensive health insurance premiums before becoming eligible for Medicare.
Sometimes, the resulting financial shortfall requires difficult compromises, including reducing expenses, finding lower-cost housing or relocating, Kassir said.
David Talley, a certified financial planner and founder of Talley Wealth, said in an interview that preparing for unexpected financial circumstances can sometimes be more effective than simply working another year or two.
The goal isn’t to replace years of lost income through clever financial maneuvers. It’s to avoid making an already difficult situation worse.
What if you can’t keep working?
For workers facing a forced retirement, the days of advance planning are behind them. Both advisers acknowledged that for someone unexpectedly pushed out of the workforce later in life, there may be no painless solution.
But that doesn’t mean that nothing can be done. Several options can help bridge the gap, especially when used together in conjunction.
Don’t automatically claim Social Security. “Stopping work and claiming Social Security are two separate decisions,” said Talley. Claiming at 62 permanently reduces monthly benefits by up to 30 percent compared with waiting until full retirement age three years later. Still, if retirees have limited sources of outside income, this may still be a necessary step.
Check eligibility for unemployment benefits. Workers who are laid off through no fault of their own may qualify for state unemployment compensation. This won’t replace a person’s entire salary, but it can be a step toward remaining solvent without draining your depleting savings.
Explore health insurance options. Losing employer-sponsored coverage generally creates a special enrollment opportunity through the Affordable Care Act marketplace. A loss of income could trigger eligibility for premium subsidies or Medicaid. COBRA may also be an option, although it can be expensive. A comparison analysis can help reveal the most cost-effective solution for getting health care coverage.
Consider disability benefits if health is the problem. Workers unable to continue employment because of a qualifying disability may be eligible for Social Security Disability Insurance. Unlike reduced early retirement benefits, SSDI generally provides a benefit based on the worker’s full retirement amount, subject to applicable rules.
Rethink what continued employment looks like. Finding another full-time position at the same salary may be difficult. Bureau of Labor Statistics data shows that an estimated 369,000 workers who lost their jobs and were reemployed by January earned at least 20 percent less than they did in their previous jobs. Part-time work, consulting or a lower-paying job might provide stopgap income and buy time before making longer-term decisions.
For someone struggling financially and unable to return to work, suggestions to save more or cut expenses may offer little comfort. But some relief options are available that can help preserve whatever financial flexibility remains.
The post Social Security pays more if you wait until 65. What happens when you can’t? appeared first on Washington Post.
